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Counterfactual: What Would Have Happened to the UK Economy Without Thatcher?

Love Thatcherism or hate it, intellectual honesty demands acknowledgement that the UK economy reversed the horrific relative decline that occurred in the 1960s and 1970s. This chart is hard to ignore:

But the left is loathe to give Thatcherism much credit. As I noted in a previous blog post, Paul Krugman will concede only that there “is a case the Thatcher changes in taxes, labor regulation, etc. created a more flexible economy, which made the good years under Blair possible.”  Just “a case.”

Margaret Thatcher used to say that “there is no alternative” to free-market capitalism. Well, no viable alternative. But there was a political alternative back in 1979, Labour (now called Old Labour).

So what if Margaret Thatcher and the Conservative Party had lost the 1979 general election? Well, one look at the Labour Party’s 1979 manifesto, “The Labour Way is the Better Way,” shows the left proposing nothing more than more of the same — all-powerful industrial unions, government ownership of industry, and confiscatory taxation. More Keynesian-fueled democratic socialism with a bit of help from North Sea oil. From the manifesto:

The Government’s industrial strategy is about how to create more wealth and more jobs through a constructive national partnership with unions and management. The Conservatives will not admit that nowadays governments must step in to help create employment, to limit prices rises, to assist industry to modernize itself. They are ready to gamble the people’s future on a return to the nineteenth century free market’ – despite its pitiless social consequences. They are as dangerously out of their time as a penny farthing on the motorway.

Would more of that have resulted in the same sort of reversal of misfortune that happened under nearly two decades of more pro-market Conservative government? Unlikely.

Perhaps after a couple more years of pain, the transformation of Old Labour into more market-friendly New Labour would have begun anyway. Yet it was Thatcher’s success that made Tony Blair’s party makeover possible, just as Ronald Reagan’s success empowered Bill Clinton and the New Democrats.

Or perhaps America’s 1980s rebound would yet have ignited a free-market revolution in Britain by 1990 or so. But the UK economic hole would been so much deeper by then. In 1979, UK real per capita GDP was 64% of America’s. If America had boomed and the UK hadn’t, by 1990 the ratio might have have been closer to 50% rather than the actual figure of 68%. (Today it’s 73%.) And at that point, the UK would have been closer to being a third-word nation than a first-world one. A submerging market.

See, there really was no alternative.

  1. Misthiocracy

    Yabbut, the poverty in 1980 was distributed more equally, so it was better.

  2. Larry3435

    “ the Labour Party’s 1979 manifesto, “The Labour Way is the Better Way,” shows the left proposing nothing more than more of the same”

    “More of the same” is the only thing the left ever proposes.  Except, in the case of the left, it is called “bold new ideas.”

    When leftist policies fail it means we need more of the same.  The stimulus wasn’t big enough.  Taxes aren’t high enough.  Spending isn’t high enough.  We need “more of the same.”  

    This goes on until the leftism goes as far left as it can go.  Then the explanation becomes “Stalin was the wrong guy to put in charge.”

  3. ctlaw

    Non-Thatcher government:

    1) lose the Falklands

    2) lose Northern Ireland

    3) lose Scotland (with a less robust English economy and the prospect of Scottish North Sea oil, independence is attractive)

    4) lose the Pound

    5) lose the central role in the Commonwealth

    6) lose the “special relationship”

    That’s the optimistic view. They could easily have gone hard Red and actively propped up the Soviet Union for a few more years.

  4. Peter Robinson
    C

    You make one completely essential point here after another.  Superb.

  5. Fredösphere
    ctlaw: 3) lose Scotland (with a less robust English economy and the prospect of Scottish North Sea oil, independence is attractive) · 5 hours ago

    The funny thing is, Labour would have never allowed Scotland to go, short of a fit of insanity. It’s produces a critical amount of one essential commodity: Labour votes. Indeed, unless I’m mistaken, even in the height of the Blair years the Conservatives always won the England-only vote.

  6. ctlaw

    Good point. But Labor would eventually run out of other people’s money .

    Fredösphere

    ctlaw: 3) lose Scotland (with a less robust English economy and the prospect of Scottish North Sea oil, independence is attractive) · 5 hours ago

    The funny thing is, Labour would have never allowed Scotland to go, short of a fit of insanity. It’s produces a critical amount of one essential commodity: Labour votes. Indeed, unless I’m mistaken, even in the height of the Blair years the Conservatives always won the England-only vote. · 0 minutes ago

  7. Fredösphere

    The left is using this opportunity to attack, attack, attack. We’ve got to force them to answer the question: what alternative do you prefer? Simply ask questions, in increasing detail, until their fantasies collapse or they are forced to own the totalitarian nightmare their fantasies imply.

  8. Fredösphere

    I have in mind in particular a writer from the UK whom I follow on Twitter. His expertise is not economics but it’s clearly an obsession of his. The last few days have been for him an occasion to denounce Thatcher’s cruelty and selfishness repeatedly.

    If I did not avoid politics on Twitter on principle, I’d ask him: do you want to return to the 70s? If yes: really? Really? If not, do you prefer some kind of Third-Way solution? (But he’s on record as loathing Blair as a Thatcher retread.) If neither, does he wish for something more left-wing than Old Labor? Does he really want communism? Or perhaps some fanciful sui generis invention of his that will only ever be implemented when we have the good sense to make him Dictator of the World?

    I honestly cannot guess which option he’d choose. Although he is smart and well-informed, it’s just possible his thinking is so self-indulgent that he’s never thought it through. But I would love to know the answer.

  9. Misthiocracy
    Fredösphere

    ctlaw: 3) lose Scotland (with a less robust English economy and the prospect of Scottish North Sea oil, independence is attractive)

    The funny thing is, Labour would have never allowed Scotland to go, short of a fit of insanity. It’s produces a critical amount of one essential commodity: Labour votes. Indeed, unless I’m mistaken, even in the height of the Blair years the Conservatives always won the England-only vote.

    If the Labour Party resolved to keep Scotland in the union by any means necessary, they wouldn’t get many Scottish votes.  Labour may bend over backwards to encourage Scotland to stay, but they cannot prevent Scotland from going.